Inflated prices could leave hotels with empty bedrooms during and either side of the London 2012 Olympic and Paralympic Games, according to the European Tour Operators Association (ETOA).
Three- to five-star properties are said to be quoting prices double their usual rate to incoming tour operators, with one four-star hotel reported to be offering rates in excess of £1,100, compared with its normal rate of £200.
"As a result, many tour operators are looking to drop London from their programmes for 2012," said EOTA spokesman David Tarsh.
If this happens, the UK could suffer the same fate as Beijing, which recorded a 30% drop in visitors during the Olympic Games of 2008, compared with the previous year.
Tarsh said the problem was compounded by the fact that the London Organising Committee of the Olympic and Paralympic Games has not yet informed hotels about its allocation of rooms, making it difficult for hoteliers to know how many rooms they have been left to sell and at what price.
"Tour operators have to negotiate hotel rates more than a year in advance so that they can market holidays to clients," he said. "It is possible that London will lose a lot of its regular clients, although it may pick up later bookings from elsewhere."
Julian Ross from the tourism and accommodation directory iknow-uk warned that hoteliers charging extortionate rates could create long-term damage that would be difficult to recover from.
"If accommodation prices rise too far, visitors will perceive the UK as an expensive place to come on holiday, and will decide to go elsewhere," Ross said. "It's about creating a balance, to ensure that the tourism industry is benefitting in order to help boost the economy, while ensuring extensive profiteering doesn't scare off potential and future visitors."
Branded hotels allocate two-thirds of rooms to LOCOG
To secure the bid for the Olympic Games in London, all branded hotels in the capital were required to allocate two-thirds of rooms to LOCOG at negotiated rates.
"This means that branded hotels in London have only one-third of rooms available for games time, so demand for rooms will be higher and fewer discounted rates will be available," said Chris Hale, head of London 2012 at InterContinental Hotels Group (IHG) - the official London 2012 hotel provider.
"As a company we're totally committed to preventing unfair pricing and ask all our hotels to respect the ethical pricing policy we have in place. We don't support price gouging and if we find any of our hotels engaging in this type of practice, we'll take action."
UK Fair Pricing and Practice Charter
The UK's Fair Pricing and Practice Charter, which was set up to avoid hefty price hikes in the run-up to London 2012, has so far been signed by nearly 500 companies. However, of the signatories only a handful are hotels.
To sign your business up to the charter visit: www.tourism2012Games.org/fppc